Bob: I am not a Basher. Just like you are not a mindless cheerleader. I read the filing and wasn't very impressed. I am uncertain as to what is the auditors work and what is not. Have the rest of these problems been solved. The voting and all? I haven't seen you respond to this. I know you have been in this from the beginning so you were probably affected by the vote or lack of a vote on a couple of occasions.
Excuse me if you have addressed this issue already.
Rancho Cucamonga, Calif.-Based Internet Firm Faces Problems with SEC
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Jul. 26--Problems continue to plague a local Internet company as it scrambles to correct faulty government filings and reschedule an improper shareholder vote.
Twice in six weeks, Rancho Cucamonga-based Hitsgalore.com Inc. submitted revised Form 10-K annual reports for 1997 and 1998 to the U.S. Securities and Exchange Commission. The latest revision was July 1. And there soon will be yet another, according to company documents.
Meanwhile, the company revealed in the new filings that Systems Communications Inc., the public company that eventually became Hitsgalore.com, failed to provide shareholders with proper notice of the two votes approving the merger that brought Hitsgalore.com into existence.
Officers and board members were not available for comment. The company invited questions via e-mail, but did not respond to them.
Hitsgalore.com started its full disclosure of such matters following revelations in May that it had not informed the SEC that its chief technology officer, Dorian Reed, faced charges of misleading investors in matters related to another company, Internet Business Broadcasting, which has since dissolved. The issue came to light after the U.S. Federal Trade Commission filed a $613,000 judgment against Reed and two former partners in May. The resulting news blasted Hitsgalore.com's stock from a lofty $20 a share to the $4 range.
Among its recent disclosures, Hitsgalore.com's new 10-Ks revealed that in 1992, Reed was convicted of wire fraud and spent 10 months in a federal prison camp.
Reed is Hitsgalore.com's majority shareholder, with nearly 60 percent of the outstanding shares.
Hitsgalore.com's first 10-K revisions were filed in May to correct the accounting its merger partner, Systems Communications, had filed for 1997 and 1998. The problem with the original filing was the method used to account for subsidiaries that had been abandoned or became dormant in 1996 and 1997, according to SEC documents.
The accounting firm Ernst & Young LLP had audited the 1996 portion of the 10-Ks and issued an initial opinion that it was a fair presentation of System Communications' financial results. However, Hitsgalore.com stated in a news release, when it revised the portion concerning dormant subsidiaries, Ernst & Young revoked its opinion. This led Hitsgalore.com to file a second 10-K revision on July 1 without the audit.
Ernst & Young officials were not available for comment.
In a news release, Hitsgalore.com executives said they will file a third revision when they receive a new accounting opinion to replace that of Ernst & Young.
The two improper shareholders' votes were intended to ratify a merger between Systems Communications and Hitsgalore.com. In the merger, Hitsgalore.com emerged as the surviving company and the assets of Systems Communications were spun off to shareholders of a subsidiary called International Healthcare Solutions Inc.
Hitsgalore revealed in revised 10-Ks that a vote on Feb. 6 was taken at an "informal" gathering of shareholders that owned or had proxies for a majority of System Communications' shares.
The vote approved the deal and the merger was completed on March 19.
However, many of the proxies were not in writing, and notice of the meeting had not been given to all the company's shareholders as required by company bylaws, Hitsgalore.com stated in its revised filings. A second vote was taken by conference call April 16, but again, notice was not given to all shareholders, the company stated.
According to System Communications' bylaws and the Securities and Exchange Act, a special meeting must be convened for yet another shareholder vote on the merger. It was not immediately known if a third meeting had been scheduled.
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TG |
